FIRST DIVISION

[G.R. No. 120138. September 5, 1997.]

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO

L. JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS CESAR
AZURA and EDGARDO D. PABALAN , petitioners, vs . COURT OF
APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL
REALTY & DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR.,
MA. CRISTINA T. CARLOS, MA. LUISA T. MORALES and DANTE D.
MORALES , respondents.

Augustus Cesar E. Azura for petitioners.

King, Capuchino, Tan & Associates for private respondents.

SYNOPSIS

Petitioner, the late Judge Torres, was the majority stockholder of Tormil Realty &
Development Corporation, while private respondents, his nieces and nephews, were the
minority stockholders. To make substantial savings in taxes, Judge Torres adopted an
"estate planning" scheme assigning to Tormil several of his personal and real properties. In
turn, Tormil issued 225,000 of its unissued shares in exchange for his properties in the cities
of Manila, Quezon, Makati and Pasay. However, Judge Torres unilaterally revoked two deeds
of assignment covering the properties in Makati and Pasay for failure of Tormil to issue the
remaining balance of 972 shares. Due to the disappearance of the Makati and Pasay
properties from the corporation's inventory of assets and nancial records, private
respondent led a complaint with the SEC to compel Judge Torres to deliver to the
corporation the two deeds of assignment. LLpr

Another controversy involving the parties was the election of the 1987 corporate
board of directors. During the stockholders meeting, petitioner Pabalan and company were
nominated and elected members of the Board after Judge Torres made an assignment of
one share to each of them from his own shares. Said assignments were recorded in the
stock and transfer book of the corporation. Private respondents, claiming they were denied
their right to pre-emption, filed a complaint with the SEC. The Panel of Hearing Officers of the
SEC ruled in favor of private respondents and declared null and void the election and
appointment of the members of the board. During the pendency of the appeal to the SEC en
banc, Judge Torres died. Notice of his death was brought to the attention of the SEC by
private respondents. Petitioners then led a motion to suspend proceedings on the ground
that there was no administrator or legal representative of Judge Torres' estate appointed by
the court. The SEC En Banc denied said motion, and thereafter rendered judgment a rming
the assailed decision. On appeal, the Court of Appeals, without requiring the transmission of
the original records of the proceedings before the SEC, dismissed the appeal. Hence, this
present recourse.
The Supreme Court held that the o ce of an injunction is merely to preserve the
status quo pending the disposition of the case; the Court of Appeals, pursuant to Revised
Administrative Circular No. 1-95, may resolve appeals from quasi-judicial agencies on the
basis of pleadings submitted by the parties without requiring the submission of the original
records of the proceedings under review; that although substitution of parties is required
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 when a party dies, the same may be dispensed with where the opposing parties themselves
voluntarily appeared, participated in the case and presented evidence in defense of the
deceased party, as in this case; and that all corporations including family corporations must
abide by the provisions of the Corporation Code and cannot have rules and practices other
than those established by law. prcd

SYLLABUS

1. REMEDIAL LAW; PROVISIONAL REMEDIES; PRELIMINARY INJUNCTION;

PURPOSE. — The o ce of an injunction is merely to preserve the status quo pending the
disposition of the case. The court can require the submission of memoranda in support of
the respective claims and positions of the parties without necessarily giving due course to
the petition.
2. ID.; ID.; ID.; ISSUANCE OF WRIT LIES WITH DISCRETION OF COURT. — The
matter of whether or not to give due course to a petition lies in the discretion of the court. prLL

3. ID.; CIVIL PROCEDURE; SUBSTITUTION OF PARTIES; PURPOSE IS TO PROTECT

RIGHT OF EVERY PARTY TO DUE PROCESS AND TO ENSURE THAT DECEASED WOULD
CONTINUE TO BE PROPERLY REPRESENTED. — The purpose behind the rule on substitution
of parties is the protection of the right of every party to due process. It is to ensure that the
deceased party would continue to be properly represented in the suit through the duly
appointed legal representative of his estate.
4. ID.; ID.; ID.; ID.; PURPOSE ACHIEVE ALTHOUGH THERE WAS NO SUBSTITUTION
OF PARTIES; CASE AT BAR. — In the present case, this purpose has been substantially
ful lled (despite the lack of formal substitution) in view of the peculiar fact that both
proceedings involve practically the same parties. Both parties have been ercely ghting in
the probate proceedings of Judge Torres' holographic will for appointment as legal
representative of his estate. Since both parties claim interests over the estate, the rights of
the estate were expected to be fully protected in the proceedings before the SEC en banc
and the Court of Appeals. In either case, whoever shall be appointed legal representative of
Judge Torres' estate (petitioner Pabalan or private respondents) would no longer be a
stranger to the present case, the said parties having voluntarily submitted to the jurisdiction
of the SEC and the Court of Appeals and having thoroughly participated in the proceedings.
Consequently, the rule that when a party dies, he should be substituted by his legal
representative to protect the interests of his estate in observance of due process was not
violated in this case in view of its peculiar situation where the estate was fully protected by
the presence of the parties who claim interests therein either as directors, stockholders or
heirs.
5. ID.; ID.; FAILURE OF COUNSEL TO INFORM COURT OF DEATH OF PARTY; CASE
AT BAR. — Petitioners led their motions to suspend proceedings only after more than two
(2) years from the death of Judge Torres. Petitioners' counsel was even remiss in his duty
under Sec. 16, Rule 3 of the Revised Rules of Court. Instead, it was private respondents who
informed the SEC of Judge Torres' death through a manifestation dated 24 April 1991.
6. CIVIL LAW; OBLIGATIONS AND CONTRACTS; NEGOTIORUM GESTIO; COVERS
ABANDONED OR NEGLECTED PROPERTY OR BUSINESS. — The principle of negotiorum
gestio does not apply in the present case. Said principle explicitly covers abandoned or
neglected property or business. cdasia

7. REMEDIAL LAW; EVIDENCE; FINDINGS OF THE SECURITIES AND EXCHANGE

CD Technologies Asia, Inc. 2018 cdasiaonline.com
 COMMISSION AFFIRMED BY THE COURT OF APPEALS, NOT DISTURBED ON APPEAL; CASE
AT BAR. — We see no justi able reason to disturb the ndings of SEC, as a rmed by the
Court of Appeals: We sustain the ruling of respondent SEC in the decision appealed from
(Rollo, pp. 45-46) that — . . . the shortage of 972 shares would not be valid ground for
respondent Torres to unilaterally revoke the deeds of assignment he had executed on July
13, 1984 and July 24, 1984 wherein he voluntarily assigned to TORMIL real properties
covered by TCT No. 374079 (Makati) and TCT Nos. 41527, 41528 and 41529 (Pasay)
respectively. A comparison of the number of shares that respondent Torres received from
TORMIL by virtue of the "deeds of assignment" and the stock certi cates issued by the latter
to the former readily shows that TORMIL had substantially performed what was expected of
it. In fact, the rst two issuances were in satisfaction to the properties being revoked by
respondent Torres. Hence, the shortage of 972 shares would never be a valid ground for the
revocation of the deeds covering Pasay and Quezon City properties. The shortage of 972
shares de nitely is not substantial and fundamental breach as would defeat the very object
of the parties in entering into contract. Art. 1355 of the Civil Code also provides: "Except in
cases speci ed by law, lesion or inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue in uences." There being no fraud, mistake or undue
in uence exerted on respondent Torres by TORMIL and the latter having already issued to
the former of its 225,000 unissued shares, the most logical course of action is to declare as
null and void the deed of revocation executed by respondent Torres.
8. COMMERCIAL LAW; CORPORATION CODE; DUTY AND OBLIGATION OF
CORPORATE SECRETARY TO REGISTER VALID TRANSFERS OF STOCKS. — It is precisely the
brewing family discord between Judge Torres and private respondents — his nephew and
nieces that should have placed Judge Torres on his guard. He should have been more careful
in ensuring that his actions (particularly the assignment of qualifying shares to his nominees)
comply with the requirements of the law. Petitioners cannot use the imsy excuse that it
would have been a vain attempt to force the incumbent corporate secretary to register the
aforestated assignments in the stock and transfer book because the latter belonged to the
opposite faction. It is the corporate secretary's duty and obligation to register valid transfers
of stocks and if said corporate o cer refuses to comply, the transferor-stockholder may
rightfully bring suit to compel performance. In other words, there are remedies within the law
that petitioners could have availed of, instead of taking the law in their own hands, as the
cliche goes.
9. ID.; ID.; ALL CORPORATIONS, MUST ABIDE BY PROVISIONS OF CORPORATION
CODE; SIMPLE FAMILY CORPORATIONS NOT EXEMPTED. — All corporations, big or small,
must abide by the provisions of the Corporation Code. Being a simple family corporation is
not an exemption. Such corporations cannot have rules and practices other than those
established by law. prLL

DECISION

KAPUNAN , J : p

In this petition for review on certiorari under Rule 45 of the Revised Rules of Court,
petitioners seek to annul the decision of the Court of Appeals in CA-G.R. SP. No. 31748
dated 23 May 1994 and its subsequent resolution dated 10 May 1995 denying petitioners'
motion for reconsideration. LLpr

CD Technologies Asia, Inc. 2018 cdasiaonline.com

 The present case involves two separate but interrelated con icts. The facts leading to
the first controversy are as follows:
The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder
of Tormil Realty & Development Corporation while private respondents who are the children
of Judge Torres' deceased brother Antonio A. Torres, constituted the minority stockholders.
In particular, their respective shareholdings and positions in the corporation were as follows:
Name of Stockholder Number of Shares Percentage Position(s)

Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair

Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500 .28 Director 1

In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an

"estate planning" scheme under which he assigned to Tormil Realty & Development
Corporation (Tormil for brevity) various real properties he owned and his shares of stock in
other corporations in exchange for 225,972 Tormil Realty shares. Hence, on various dates in
July and August of 1984, ten (10) deeds of assignment were executed by the late Judge
Torres:

ASSIGNMENT DATE PROPERLY ASSIGNED LOCATION SHARES TO BE

ISSUED

1. July 13, 1984 TCT 81834 Quezon City 13,252

TCT 144240 Quezon City
2. July 13, 1984 TCT 77008 Manila
TCT 65689 Manila 78,493
TCT 109200 Manila
3. July 13, 1984 TCT 374079 Makati 8,307
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay 9,855
TCT 41529 Pasay
5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000
6. Aug. 06, 1984 Manila Jockey Club Stocks 48,737
7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283
8. Aug. 07, 1984 China Banking Corp. Stocks 6,300
9. Aug. 20, 1984 Ayala Corp. Stocks 7,468
10. Aug. 29, 1984 Ayala Fund Stocks 1,322
—————
225,972 2
—————

Consequently, the aforelisted properties were duly recorded in the inventory of assets
of Tormil Realty and the revenues generated by the said properties were correspondingly
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 entered in the corporation's books of account and financial records.
Likewise, all the assigned parcels of land were duly registered with the respective
Register of Deeds in the name of Tormil Realty, except for the ones located in Makati and
Pasay City.
At the time of the assignments and exchange, however, only 225,000 Tormil Realty
shares remained unsubscribed, all of which were duly issued to and received by Judge
Torres (as evidenced by stock certificates nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25). 3
Due to the insu cient number of shares of stock issued to Judge Torres and the
alleged refusal of private respondents to approve the needed increase in the corporation's
authorized capital stock (to cover the shortage of 972 shares due to Judge Torres under the
"estate planning" scheme), on 11 September 1986, Judge Torres revoked the two (2) deeds
of assignment covering the properties in Makati and Pasay City. 4
Noting the disappearance of the Makati and Pasay City properties from the
corporation's inventory of assets and nancial records private respondents, on 31 March
1987, were constrained to le a complaint with the Securities and Exchange Commission
(SEC) docketed as SEC Case No. 3153 to compel Judge Torres to deliver to Tormil
corporation the two (2) deeds of assignment covering the aforementioned Makati and Pasay
City properties which he had unilaterally revoked and to cause the registration of the
corresponding titles in the name of Tormil. Private respondents alleged that following the
disappearance of the properties from the corporation's inventory of assets, they found that
on October 24, 1986, Judge Torres, together with Edgardo Pabalan and Graciano Tobias,
then General Manager and legal counsel, respectively, of Tormil, formed and organized a
corporation named "Torres-Pabalan Realty and Development Corporation" and that as part of
Judge Torres' contribution to the new corporation, he executed in its favor a Deed of
Assignment conveying the same Makati and Pasay City properties he had earlier transferred
to Tormil.
The second controversy — involving the same parties — concerned the election of the
1987 corporate board of directors.
The 1987 annual stockholders meeting and election of directors of Tormil corporation
was scheduled on 25 March 1987 in compliance with the provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (1) share each to
petitioners Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares were
in the nature of "qualifying shares," for the sole purpose of meeting the legal requirement to
be able to elect them (Tobias and company) to the Board of Directors as Torres' nominees.
The assigned shares were covered by corresponding Tormil Stock Certi cates Nos.
030, 029, 028, 027, 026 and at the back of each certificate the following inscription is found:
The present certi cate and/or the one share it represents, conformably to the
purpose and intention of the Deed of Assignment dated March 6, 1987, is not held
by me under any claim of ownership and I acknowledge that I hold the same merely
as trustee of Judge Manuel A. Torres, Jr. and for the sole purpose of qualifying me
as Director;

(Signature of Assignee) 5

The reason behind the aforestated action was to remedy the "inequitable lopsided set-
up obtaining in the corporation, where, notwithstanding his controlling interest in the
corporation, the late Judge held only a single seat in the nine-member Board of Directors and
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 was, therefore, at the mercy of the minority, a combination of any two (2) of whom would
suffice to overrule the majority stockholder in the Board's decision making functions." 6
On 25 March 1987, the annual stockholders meeting was held as scheduled. What
transpired therein was ably narrated by Attys. Benito Cataran and Bayani De los Reyes, the
o cial representatives dispatched by the SEC to observe the proceedings (upon request of
the late Judge Torres) in their report dated 27 March 1987:
xxx xxx xxx

The undersigned arrived at 1:55 p.m. in the place of the meeting, a residential
bungalow in Urdaneta Village, Makati, Metro Manila. Upon arrival, Jose na Torres
introduced us to the stockholders namely: Milagros Torres, Antonio Torres, Jr., Ma.
Luisa Morales, Ma. Cristina Carlos and Ma. Jacinta Torres. Antonio Torres, Jr.
questioned our authority and personality to appear in the meeting claiming subject
corporation is a family and private rm. We explained that our appearance there
was merely in response to the request of Manuel Torres, Jr. and that SEC has
jurisdiction over all registered corporations. Manuel Torres, Jr., a septuagenarian,
argued that as holder of the major and controlling shares, he approved of our
attendance in the meeting.
At about 2 :30 p.m., a group composed of Edgardo Pabalan, Atty. Graciano
Tobias, Atty. Rodolfo Jocson, Jr., Atty. Melvin Jurisprudencia, and Atty. Augustus
Cesar Azura arrived. Atty . Azura told the body that they came as counsels of Manuel
Torres, Jr . and as stockholders having assigned qualifying shares by Manuel
Torres. Jr.
The stockholders' meeting started at 2 :45 p.m. with Mr. Pabalan presiding
after verbally authorized by Manuel Torres, Jr., the President and Chairman of the
Board. The secretary when asked about the quorum, said that there was more than
a quorum. Mr. Pabalan distributed copies of the president's report and the nancial
statements. Antonio Torres, Jr. requested time to study the said reports and brought
out the question of auditing the nances of the corporation which he claimed was
approved previously by the board. Heated arguments ensued which also touched on
family matters. Antonio Torres, Jr . moved for the suspension of the meeting but
Manuel Torres, Jr. voted for the continuation of the proceedings.
Mr. Pabalan suggested that the opinion of the SEC representatives be asked
on the propriety of suspending the meeting but Antonio Torres, Jr. objected
reasoning out that we were just observers.

When the Chairman called for the election of directors, the Secretary refused
to write down the names of nominees prompting Atty. Azura to initiate the
appointment of Atty. Jocson, Jr. as Acting Secretary.

Antonio Torres, Jr . nominated the present members of the Board. At this

juncture, Milagros Torres cried out and told the group of Manuel Torres, Jr. to leave
the house.
Manuel Torres, Jr., together with his lawyers-stockholders went to the
residence of Ma. Jacinta Torres in San Miguel Village, Makati, Metro Manila. The
undersigned joined them since the group with Manuel Torres, Jr. the one who
requested for S.E.C. observers, represented the majority of the outstanding capital
stock and still constituted a quorum.

At the resumption of the meeting, the following were nominated and elected
as directors for the year 1987-1988:
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 1. Manuel Torres, Jr.

2. Ma. Jacinta Torres

3. Edgardo Pabalan

4. Graciano Tobias

5. Rodolfo Jocson, Jr.

6. Melvin Jurisprudencia
7. Augustus Cesar Azura

8. Josefina Torres

9. Dante Morales
After the election, it was resolved that after the meeting, the new board of
directors shall convene for the election of officers.
xxx xxx xxx 7

Consequently, on 10 April 1987, private respondents instituted a complaint with the

SEC (SEC Case No. 3161) praying in the main, that the election of petitioners to the Board of
Directors be annulled.
Private respondents alleged that the petitioners-nominees were not legitimate
stockholders of Tormil because the assignment of shares to them violated the minority
stockholders' right of pre-emption as provided in the corporation's articles and by-laws.
Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for
joint hearing and adjudication.
On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision in favor
of private respondents. The dispositive portion thereof states, thus:
WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering and directing the respondents, particularly respondent

Manuel A. Torres, Jr., to turn over and deliver to TORMIL through its Corporate
Secretary, Ma. Cristina T. Carlos: (a) the originals of the Deeds of Assignment dated
July 13 and 24, 1984 together with the owner's duplicates of Transfer Certi cates of
Title Nos. 374079 of the Registry of Deeds for Makati, and 41527, 41528 and 41529
of the Registry of Deeds for Pasay City and/or to cause the formal registration and
transfer of title in and over such real properties in favor of TORMIL with the proper
government agency; (b) all corporate books of account, records and papers as may
be necessary for the conduct of a comprehensive audit examination, and to allow
the examination and inspection of such accounting books, papers and records by
any or all of the corporate directors, o cers and stockholders and/or their duly
authorized representatives or auditors;
2. Declaring as permanent and nal the writ of preliminary injunction
issued by the Hearing Panel on February 13, 1989:

3. Declaring as null and void the election and appointment of

respondents to the Board of Directors and executive positions of TORMIL held on
March 25, 1987, and all their acts and resolutions made for and in behalf of
TORMIL by authority of and pursuant to such invalid appointment & election held
on March 25, 1987;
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 4. Ordering the respondents jointly and severally, to pay the
complainants the sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) as and
by way of attorney's fees. 8

Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No. 339).
Thereafter, on 3 April 1991, during the pendency of said appeal, petitioner Manuel A. Torres,
Jr. died. However, notice thereof was brought to the attention of the SEC not by petitioners'
counsel but by private respondents in a Manifestation dated 24 April 1991. 9
On 8 June 1993, petitioners led a Motion to Suspend Proceedings on grounds that
no administrator or legal representative of the late Judge Torres' estate has yet been
appointed by the Regional Trial Court of Makati where Sp. Proc. No. M-1768 ("In the Matter
of the Issuance of the Last Will and Testament of Manuel A. Torres, Jr.") was pending. Two
similar motions for suspension were filed by petitioners on 28 June 1993 and 9 July 1993.
On 19 July 1993, the SEC en banc issued an Order denying petitioners' aforecited
motions on the following ground:
"Before the ling of these motions, the Commission en banc had already
completed all proceedings and had likewise ruled on the merits of the appealed
cases. Viewed in this light, we thus feel that there is nothing left to be done except to
deny these motions to suspend proceedings." 1 0

On the same date, the SEC en banc rendered a decision, the dispositive portion of
which reads. thus:
WHEREFORE, premises considered, the appealed decision of the hearing
panel is hereby a rmed and all motions pending before us incident to this
appealed case are necessarily DISMISSED.

SO ORDERED. 1 1

Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to the Court
of Appeals by way of a petition for review (docketed as CA-G.R. SP No. 31748).
On 23 May 1994, the Court of Appeals rendered a decision, the dispositive portion of
which states:
"WHEREFORE, the petition for review is DISMISSED and the appealed
decision is accordingly affirmed.
SO ORDERED. 1 2

From the said decision, petitioners led a motion for reconsideration which was
denied in a resolution issued by the Court of Appeals dated 10 May 1995. 1 3
Insisting on their cause, petitioners led the present petition for review alleging that
the Court of Appeals committed the following errors in its decision:
(1)
WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTH
DECISION, WITHOUT THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C.-AC NO.
339 BEING PROPERLY BROUGHT BEFORE IT FOR REVIEW AND RE-EXAMINATION,
AN OMISSION RESULTING IN A CLEAR TRANSGRESSION OR CURTAILMENT OF
THE RIGHTS OF THE HEREIN PETITIONERS TO PROCEDURAL DUE PROCESS;

(2)
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT S.E.C.,
WHICH IS VOID FOR HAVING BEEN RENDERED WITHOUT THE PROPER
SUBSTITUTION OF THE DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC
NO. 339 AND CONSEQUENTLY, FOR WANT OF JURISDICTION OVER THE SAID
DECEASED'S TESTATE ESTATE, AND MOREOVER, WHEN IT SOUGHT TO JUSTIFY
THE NON-SUBSTITUTION BY ITS APPLICATION OF THE CIVIL LAW CONCEPT OF
NEGOTIORUM GESTIO;

(3)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE

ORIGINAL RECORD OF S.E.C.-AC NO. 339 NOT HAVING ACTUALLY BEEN RE-
EXAMINED, THAT S.E.C. CASE NO. 3153 INVOLVED A SITUATION WHERE
PERFORMANCE WAS IMPOSSIBLE (AS CONTEMPLATED UNDER ARTICLE 1191 OF
THE CIVIL CODE) AND WAS NOT A MERE CASE OF LESION OR INADEQUACY OF
CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE) AS SO ERRONEOUSLY
CHARACTERIZED BY THE RESPONDENT S.E.C.; and,

(4)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE

ORIGINAL RECORD OF S.E.C.-AC NO. 339 NOT HAVING ACTUALLY BEEN
EXAMINED, THAT THE RECORDING BY THE LATE JUDGE MANUEL A. TORRES, JR.
OF THE QUESTIONED ASSIGNMENT OF QUALIFYING SHARES TO HIS NOMINEES,
WAS AFFIRMED IN THE STOCK AND TRANSFER BOOK BY AN ACTING CORPORATE
SECRETARY AND MOREOVER, THAT ACTUAL NOTICE OF SAID ASSIGNMENT WAS
TIMELY MADE TO THE OTHER STOCKHOLDERS. 14

We shall resolve the issues in seriatim.

I
Petitioners insist that the failure to transmit the original records to the Court of
Appeals deprived them of procedural due process. Without the evidence and the original
records of the proceedings before the SEC, the Court of Appeals, petitioners adamantly
state, could not have possibly made a proper appreciation and correct determination of the
issues, particularly the factual issues, they had raised on appeal. Petitioners also assert that
since the Court of Appeals allegedly gave due course to their petition, the original records
should have been forwarded to said court.
Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91 (dated 27
February 1991) which provides that:
8. WHEN PETITION GIVEN DUE COURSE. — The Court of Appeals shall
give due course to the petition only when it shows prima facie that the court,
commission, board, o ce or agency concerned has committed errors of fact or law
that would warrant reversal or modi cation of the order, ruling or decision sought to
be reviewed. The ndings of fact of the court, commission, board, o ce or agency
concerned when supported by substantial evidence shall be final.

xxx xxx xxx

11. TRANSMITTAL OF RECORD . — Within fteen (15) days from notice

that the petition has been given due course, the court, commission, board, o ce or
agency concerned shall transmit to the Court of Appeals the original or a certi ed
copy of the entire record of the proceeding under review. The record to be
transmitted may be abridged by agreement of all parties to the proceeding. The
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 Court of Appeals may require or permit subsequent correction or addition to the
record.

Petitioners contend that the Court of Appeals had given due course to their petition as
allegedly indicated by the following acts: prLL

a) it granted the restraining order applied for by the herein petitioners, and after
hearing, also the writ of preliminary injunction sought by them; under the
original SC Circular No. 1-91, a petition for review may be given due course at
the onset (paragraph 8) upon a mere prima facie nding of errors of fact or
law having been committed, and such prima facie nding is but consistent
with the grant of the extraordinary writ of preliminary injunction;

b) it required the parties to submit "simultaneous memoranda" in its resolution

dated October 15, 1993 (this is in addition to the comment required to be filed
by the respondents) and furthermore declared in the same resolution that the
petition will be decided "on the merits," instead of outrightly dismissing the
same;

c) it rendered a full length decision, wherein: (aa) it expressly declared the

respondent S.E.C. as having erred in denying the pertinent motions to
suspend proceedings; (bb) it declared the supposed error as having become a
non-issue when the respondent C.A. "proceeded to hear (the) appeal"; (cc) it
formulated and applied its own theory of negotiorum gestio in justifying the
non-substitution of the deceased principal party in S.E.C.-AC No. 339 and
moreover, its theory of di minimis non curat lex (this, without rst
determining the true extent of and the correct legal characterization of the so-
called "shortage" of Tormil shares; and, (dd) it expressly a rmed the
assailed decision of respondent S.E.C. 1 5

Petitioners' contention is unmeritorious.

There is nothing on record to show that the Court of Appeals gave due course to the
petition. The fact alone that the Court of Appeals issued a restraining order and a writ of
preliminary injunction and required the parties to submit their respective memoranda does
not indicate that the petition was given due course. The o ce of an injunction is merely to
preserve the status quo pending the disposition of the case. The court can require the
submission of memoranda in support of the respective claims and positions of the parties
without necessarily giving due course to the petition. The matter of whether or not to give
due course to a petition lies in the discretion of the court.
It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised
Administrative Circular No. 1-95 (which took effect on 1 June 1995) wherein the procedure
for appeals from quasi-judicial agencies to the Court of Appeals was clarified thus:
10. Due course. — If upon the ling of the comment or such other
pleadings or documents as may be required or allowed by the Court of Appeals or
upon the expiration of the period for the ling thereof, and on the bases of the
petition or the record the Court of Appeals nds prima facie that the court or agency
concerned has committed errors of fact or law that would warrant reversal or
modi cation of the award, judgment, nal order or resolution sought to be reviewed,
it may give due course to the petition; otherwise, it shall dismiss the same. The
ndings of fact of the court or agency concerned, when supported by substantial
evidence, shall be binding on the Court of Appeals.

11. Transmittal of record. — Within fteen ( 15) days from notice that the
petition has been given due course, the Court of Appeals may require the court or
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 agency concerned to transmit the original or a legible certi ed true copy of the entire
record of the proceeding under review. The record to be transmitted may be
abridged by agreement of all parties to the proceeding. The Court of Appeals may
require or permit subsequent correction of or addition to the record. (Underscoring
ours.)

The aforecited circular now formalizes the correct practice and clearly states that in
resolving appeals from quasi judicial agencies, it is within the discretion of the Court of
Appeals to have the original records of the proceedings under review be transmitted to it. In
this connection, petitioners' claim that the Court of Appeals could not have decided the case
on the merits without the records being brought before it is patently lame. Indubitably, the
Court of Appeals decided the case on the basis of the uncontroverted facts and admissions
contained in the pleadings, that is, the petition, comment, reply, rejoinder, memoranda, etc.
filed by the parties.
II
Petitioners contend that the decisions of the SEC and the Court of Appeals are null
and void for being rendered without the necessary substitution of parties (for the deceased
petitioner Manuel A. Torres, Jr.) as mandated by Sec. 17, Rule 3 of the Revised Rules of Court,
which provides as follows:
SEC. 17. Death of party. — After a party dies and the claim is not thereby
extinguished, the court shall order, upon proper notice, the legal representative of the
deceased to appear and to be substituted for the deceased, within a period of thirty
(30) days, or within such time as may be granted. If the legal representative fails to
appear within said time, the court may order the opposing party to procure the
appointment of a legal representative of the deceased within a time to be speci ed
by the court, and the representative shall immediately appear for and on behalf of
the interest of the deceased. The court charges involved in procuring such
appointment, if defrayed by the opposing party, may be recovered as costs. The
heirs of the deceased may be allowed to be substituted for the deceased, without
requiring the appointment of an executor or administrator and the court may
appoint guardian ad litem for the minor heirs.

Petitioners insist that the SEC en banc should have granted the motions to suspend
they led based as they were on the ground that the Regional Trial Court of Makati, where the
probate of the late Judge Torres' will was pending, had yet to appoint an administrator or
legal representative of his estate.
We are not unaware of the principle underlying the aforequoted provision:
It has been held that when a party dies in an action that survives, and no
order is issued by the Court for the appearance of the legal representative or of the
heirs of the deceased to be substituted for the deceased, and as a matter of fact no
such substitution has ever been effected, the trial held by the court without such
legal representative or heirs, and the judgment rendered after such trial, are null and
void because the court acquired no jurisdiction over the persons of the legal
representative or of the heirs upon whom the trial and the judgment are not binding.
16

As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-1768
before the Regional Trial Court of Makati for the ante-mortem probate of his holographic will
which he had executed on 31 October 1986. Testifying in the said proceedings, Judge Torres
con rmed his appointment of petitioner Edgardo D. Pabalan as the sole executor of his will
and administrator of his estate. The proceedings, however, were opposed by the same
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 parties, herein private respondents Antonio P. Torres, Jr., Ma. Luisa T. Morales and Ma.
Cristina T. Carlos, 1 7 who are nephew and nieces of Judge Torres, being the children of his
late brother Antonio A. Torres.
It can readily be observed therefore that the parties involved in the present
controversy are virtually the same parties ghting over the representation of the late Judge
Torres' estate. It should be recalled that the purpose behind the rule on substitution of
parties is the protection of the right of every party to due process. It is to ensure that the
deceased party would continue to be properly represented in the suit through the duly
appointed legal representative of his estate. In the present case, this purpose has been
substantially ful lled (despite the lack of formal substitution) in view of the peculiar fact that
both proceedings involve practically the same parties. Both parties have been ercely
ghting in the probate proceedings of Judge Torres' holographic will for appointment as
legal representative of his estate. Since both parties claim interests over the estate, the
rights of the estate were expected to be fully protected in the proceedings before the SEC en
banc and the Court of Appeals. In either case, whoever shall be appointed legal
representative of Judge Torres' estate (petitioner Pabalan or private respondents) would no
longer be a stranger to the present case, the said parties having voluntarily submitted to the
jurisdiction of the SEC and the Court of Appeals and having thoroughly participated in the
proceedings.
The foregoing rationale nds support in the recent case of Vda. de Salazar v. CA, 18
wherein the Court expounded thus:
The need for substitution of heirs is based on the right to due process
accruing to every party in any proceeding. The rationale underlying this requirement
in case a party dies during the pendency of proceedings of a nature not
extinguished by such death, is that . . . the exercise of judicial power to hear and
determine a cause implicitly presupposes in the trial court, amongst other
essentials, jurisdiction over the persons of the parties. That jurisdiction was
inevitably impaired upon the death of the protestee pending the proceedings below
such that unless and until a legal representative is for him duly named and within
the jurisdiction of the trial court, no adjudication in the cause could have been
accorded any validity or binding effect upon any party, in representation of the
deceased, without trenching upon the fundamental right to a day in court which is
the very essence of the constitutionally enshrined guarantee of due process.
We are not unaware of several cases where we have ruled that a party having
died in an action that survives, the trial held by the court without appearance of the
deceased's legal representative or substitution of heirs and the judgment rendered
after such trial, are null and void because the court acquired no jurisdiction over the
persons of the legal representatives or of the heirs upon whom the trial and the
judgment would be binding. This general rule notwithstanding, in denying
petitioner's motion for reconsideration, the Court of Appeals correctly ruled that
formal substitution of heirs is not necessary when the heirs themselves voluntarily
appeared, participated in the case and presented evidence in defense of deceased
defendant. Attending the case at bench, after all, are these particular circumstances
which negate petitioner's belated and seemingly ostensible claim of violation of her
rights to due process. We should not lose sight of the principle underlying the
general rule that formal substitution of heirs must be effectuated for them to be
bound by a subsequent judgment. Such had been the general rule established not
because the rule on substitution of heirs and that on appointment of a legal
representative are jurisdictional requirements per se but because non-compliance
therewith results in the undeniable violation of the right to due process of those
who, though not duly noti ed of the proceedings, are substantially affected by the
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 decision rendered therein. . .

It is appropriate to mention here that when Judge Torres died on April 3, 1991, the
SEC en banc had already fully heard the parties and what remained was the evaluation of the
evidence and rendition of the judgment.
Further, petitioners led their motions to suspend proceedings only after more than
two (2) years from the death of Judge Torres. Petitioners' counsel was even remiss in his
duty under Sec. 16, Rule 3 of the Revised Rules of Court. 1 9 Instead, it was private
respondents who informed the SEC of Judge Torres' death through a manifestation dated 24
April 1991.
For the SEC en banc to have suspended the proceedings to await the appointment of
the legal representative by the estate was impractical and would have caused undue delay in
the proceedings and a denial of justice. There is no telling when the probate court will decide
the issue, which may still be appealed to the higher courts.
In any case, there has been no nal disposition of the properties of the late Judge
Torres before the SEC. On the contrary, the decision of the SEC en banc as a rmed by the
Court of Appeals served to protect and preserve his estate. Consequently, the rule that when
a party dies, he should be substituted by his legal representative to protect the interests of
his estate in observance of due process was not violated in this case in view of its peculiar
situation where the estate was fully protected by the presence of the parties who claim
interests therein either as directors, stockholders or heirs.
Finally, we agree with petitioners' contention that the principle of negotiorum gestio 20
does not apply in the present case. Said principle explicitly covers abandoned or neglected
property or business.
III
Petitioners nd legal basis for Judge Torres' act of revoking the assignment of his
properties in Makati and Pasay City to Tormil corporation by relying on Art. 1191 of the Civil
Code which provides that:
ART. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the ful llment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen ful llment, if the latter should become
impossible.

The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.

Petitioners' contentions cannot be sustained. We see no justi able reason to disturb

the findings of SEC, as affirmed by the Court of Appeals:
We sustain the ruling of respondent SEC in the decision appealed from (Rollo,
pp. 45-46) that —

CD Technologies Asia, Inc. 2018 cdasiaonline.com

 . . . the shortage of 972 shares would not be valid ground for
respondent Torres to unilaterally revoke the deeds of assignment he had
executed on July 13, 1984 and July 24, 1984 wherein he voluntarily assigned
to TORMIL real properties covered by TCT No. 374079 (Makati) and TCT No.
41527, 41528 and 41529 (Pasay) respectively.
A comparison of the number of shares that respondent Torres
received from TORMIL by virtue of the "deeds of assignment" and the stock
certi cates issued by the latter to the former readily shows that TORMIL had
substantially performed what was expected of it. In fact, the rst two
issuances were in satisfaction to the properties being revoked by respondent
Torres. Hence, the shortage of 972 shares would never be a valid ground for
the revocation of the deeds covering Pasay and Quezon City properties.
In Universal Food Corp. vs. CA, the Supreme Court held:

The general rule is that rescission of a contract will not be permitted

for a slight or carnal breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the
agreement.
The shortage of 972 shares de nitely is not substantial and
fundamental breach as would defeat the very object of the parties in entering
into contract. Art. 1355 of the Civil Code also provides: "Except in cases
speci ed by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue in uences." There
being no fraud, mistake or undue in uence exerted on respondent Torres by
TORMIL and the latter having already issued to the former of its 225,000
unissued shares, the most logical course of action is to declare as null and
void the deed of revocation executed by respondent Torres. (Rollo, pp. 45-46.)
21

The aforequoted Civil Code provision does not apply in this particular situation for the
obvious reason that a speci c number of shares of stock (as evidenced by stock
certi cates) had already been issued to the late Judge Torres in exchange for his Makati and
Pasay City properties. The records thus disclose:

DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF

ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE*
1. July 13, 1984 TCT 81834 Quezon City 13,252 3rd
TCT 144240 Quezon City
2. July 13, 1984 TCT 77008 Manila
TCT 65689 Manila 78,493 2nd
TCT 102200 Manila
3. July 13, 1984 TCT 374079 Makati 8,307 1st
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay 9,855 4th
TCT 41529 Pasay
5. August 06, 1984 El Hogar Filipino Stocks 2,000 7th
6. August 06, 1984 Manila Jockey Club Stocks 48,737 5th
7. August 07, 1984 San Miguel Corp. Stocks 50,238 8th
8. August 07, 1984 China Banking Corp. Stocks 6,300 6th
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 9. August 20, 1984 Ayala Corp. Stocks 7,468.2)
10. August 29, 1984 Ayala Fund Stocks 1,322.1) 9th
—————
TOTAL 225,972.3

* Order of stock certi cate issuances by TORMIL to respondent Torres

relative to the Deeds of Assignment he executed sometime in July and August,
1984. 22 (Emphasis ours.)

Moreover, we agree with the contention of the Solicitor General that the shortage of
shares should not have affected the assignment of the Makati and Pasay City properties
which were executed in 13 and 24 July 1984 and the consideration for which have been duly
paid or ful lled but should have been applied logically to the last assignment of property —
Judge Torres' Ayala Fund shares — which was executed on 29 August 1984. 2 3
Petitioners insist that the assignment of "qualifying shares" to the nominees of the late
Judge Torres (herein petitioners) does not partake of the real nature of a transfer or
conveyance of shares of stock as would call for the "imposition of stringent requirements
(with respect to the) recording of the transfer of said shares." Anyway, petitioners add, there
was substantial compliance with the abovestated requirement since said assignments were
entered by the late Judge Torres himself in the corporation's stock and transfer book on 6
March 1987, prior to the 25 March 1987 annual stockholders meeting and which entries
were con rmed on 8 March 1987 by petitioner Azura who was appointed Assistant
Corporate Secretary by Judge Torres.
Petitioners further argue that:
10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to
penalize the late Judge Torres by invalidating the questioned entries in the stock
and transfer book, simply because he initially made those entries (they were later
a rmed by an acting corporate secretary) and because the stock and transfer book
was in his possession instead of the elected corporate secretary, if the background
facts herein-before narrated and the serious animosities that then reigned between
the deceased Judge and his relatives are to be taken into account;
xxx xxx xxx

10.12. Indeed it was a practice in the corporate respondent, a family

corporation with only a measly number of stockholders, for the late judge to have
personal custody of corporate records; as president, chairman and majority
stockholder, he had the prerogative of designating an acting corporate secretary or
to himself make the needed entries, in instances where the regular secretary, who is
a mere subordinate, is unavailable or intentionally defaults, which was the situation
that obtained immediately prior to the 1987 annual stockholders meeting of Tormil,
as the late Judge Torres had so indicated in the stock and transfer book in the form
of the entries now in question;
10.13. Surely, it would have been futile nay foolish for him to have
insisted under those circumstances, for the regular secretary, who was then part of a
group ranged against him, to make the entries of the assignments in favor of his
nominees; 2 4

Petitioners' contentions lack merit.

It is precisely the brewing family discord between Judge Torres and private
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 respondents — his nephew and nieces that should have placed Judge Torres on his guard.
He should have been more careful in ensuring that his actions (particularly the assignment of
qualifying shares to his nominees) comply with the requirements of the law. Petitioners
cannot use the imsy excuse that it would have been a vain attempt to force the incumbent
corporate secretary to register the aforestated assignments in the stock and transfer book
because the latter belonged to the opposite faction. It is the corporate secretary's duty and
obligation to register valid transfers of stocks and if said corporate o cer refuses to
comply, the transferor-stockholder may rightfully bring suit to compel performance. 25 In
other words, there are remedies within the law that petitioners could have availed of, instead
of taking the law in their own hands, as the cliché goes. lexlib

Thus, we agree with the ruling of the SEC en banc as affirmed by the Court of Appeals:
We likewise sustain respondent SEC when it ruled, interpreting Section 74 of
the Corporation Code, as follows (Rollo, p. 45):
In the absence of (any) provision to the contrary, the corporate
secretary is the custodian of corporate records. Corollarily, he keeps the stock
and transfer book and makes proper and necessary entries therein.
Contrary to the generally accepted corporate practice, the stock and
transfer book of TORMIL, was not kept by Ms. Maria Cristina T. Carlos, the
corporate secretary but by respondent Torres, the President and Chairman of
the Board of Directors of TORMIL. In contravention to the above cited
provision, the stock and transfer book was not kept at the principal o ce of
the corporation either but at the place of respondent Torres.
These being the obtaining circumstances, any entries made in the
stock and transfer book on March 8, 1987 by respondent Torres of an alleged
transfer of nominal shares to Pabalan and Co. cannot therefore be given any
valid effect. Where the entries made are not valid, Pabalan and Co. cannot
therefore be considered stockholders of record of TORMIL. Because they are
not stockholders, they cannot therefore be elected as directors of TORMIL. To
rule otherwise would not only encourage violation of clear mandate of Sec.
74 of the Corporation Code that stock and transfer book shall be kept in the
principal o ce of the corporation but would likewise open the ood gates of
confusion in the corporation as to who has the proper custody of the stock
and transfer book and who are the real stockholders of records of a certain
corporation as any holder of the stock and transfer book, though not the
corporate secretary, at pleasure would make entries therein.

The fact that respondent Torres holds 81.28% of the outstanding

capital stock of TORMIL is of no moment and is not a license for him to
arrogate unto himself a duty lodged to (sic) the corporate secretary. 2 6

All corporations, big or small, must abide by the provisions of the Corporation Code.
Being a simple family corporation is not an exemption. Such corporations cannot have rules
and practices other than those established by law.
WHEREFORE, premises considered, the petition for review on certiorari is hereby
DENIED.
SO ORDERED.
Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.

CD Technologies Asia, Inc. 2018 cdasiaonline.com

 Footnotes
1. Rollo, pp. 6-7.
2. Id., at 59.
3. Id., at 60.
4. Deed of Revocation, Rollo, pp. 230-231.
5. Id., at 11.
6. Ibid.
7. Id., at 16-17.
8. Id., at 57-58; 104-105.
9. Id., at 119-120.
10. Id., at 113.
11. Id., at 112.
12. Id., at 64.
13. Id., at 66-67.
14. Id., at 23-24.
15. Id., at 26.
16. Moran, Manuel V., Comments on the Rules of Court, Vol. I, 1979, p. 214, citing Ferreria v.
Vda. de Gonzales, 104 Phil. 143.
17. Rollo, pp. 225-229.
18. 250 SCRA 305 (1995).

19. SEC. 16. Duty of attorney upon death, incapacity or incompetency of party. —
Whenever a party to a pending case dies, becomes incapacitated or incompetent, it shall be
the duty of his attorney to inform the court promptly of such death, incapacity or
incompetency, and to give the name and residence of his executor, administrator, guardian
or other legal representative.
20. The above-mentioned principle is provided in Art. 2144 of the Civil Code, which states,
thus:
ART. 2144. Whoever voluntarily takes charge of the agency or management of the
business or property of another, without any power from the latter, is obliged to
continue the same until the termination of the affair and its incidents, or to require
the person concerned to substitute him, if the owner is in a position to do so. This
juridical relation does not arise in either of these instances:

(1) When the property or business is not neglected or abandoned;

(2) If in fact the manager has been tacitly authorized by the owner.
In the rst case, the provisions of articles 1317, 1403, No. 1, and 1404 regarding
unauthorized contracts shall govern.
In the second case, the rules on agency in Title X of this Book shall be applicable.
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 21. Rollo, pp. 62-63.
22. Id., at 107.
23. Id., at 359.
24. Id., at 49-50.
25. Lopez, Rosario N., The Corporate Code of the Philippines Annotated, Vol. Two, 1994, pp.
816-817.
26. Rollo, pp. 63-64.

CD Technologies Asia, Inc. 2018 cdasiaonline.com